Mobile driving Qunar’s future, including its association with Baidu

As mobile continues to increase its say in revenue generation, Qunar is going to pump in more money to further drive expansion of its mobile user base.

ChinaTravelNews, Ritesh Gupta - Qunar’s ongoing revenue generation transition from PC to mobile and its evolving association with Baidu, especially with two entities deciding to end the Zhixin cooperation agreement, are being minutely scrutinized as the company strives to achieve profitability by the next year or so.

Sharing its Q1 results, Qunar clarified that with the conclusion of Zhixin cooperation agreement, there won’t be any “material impact” on its “operations or financial condition”.

But this definitely brings a key question to the fore – with mobile being a major focus, can the same catapult Qunar to profitability as planned?

Before we talk about mobile in isolation, it needs to be mentioned that there are three important links to Qunar’s investments as it gears up for best long-term returns.

Speaking during the company’s Q1 earnings call, Qunar’s CFO, Yilu Zhao mentioned that technology-related investment has enabled the company to scale to automation. Looking back at its early execution of its SaaS system five years ago, the company today says this has paved way for smooth transition into the mobile era. The resulting data infrastructure ensures closure of transactions within its own platform.

The other two aspects are nurturing supply chain and user base expansion on mobile.

“User expansion in mobile will be the driver for long-term revenue growth as our users stay with us for a long-period of time with increased transaction frequencies every year,” said Zhao.

There are numerous benefits of such approach, for instance, having a centralized mobile platform allows for effective cross-selling.

This engaged and loyal mobile customer base, along with Qunar’s knack to spread its product offerings, has enabled to draw even more active users, step up user engagement and further improve a virtuous network effect.

“We have stepped up on our investments in Q2 in offline marketing channels. The online penetration is still low in China’s travel industry. Offline channels present bigger opportunity to any online channels in attracting and converting leads. We also offer incentive to users for downloading our apps while setting up payment methods,” explained Zhao.

Qunar’s co-founder and CEO, CC Zhuang said, “For many quarters we have focused on capturing the offline to mobile tailwind and as a result, all our mobile-related metrics are trending up being very robust way very consistently.”

Zhao further added that considering China’s side of the transition from offline to mobile as well as hotel direct networks that the team has worked on over the past year or so, it’s time to expand and monetize this for improved performance. Qunar’s direct hotel network covered over 237,000 hotels till last year. Also, the company finalized pacts with 22 global hotel chains in Q1 to strengthen its portfolio to cover high-end luxury hotels and the overseas market.

Mobile platform – standout performer

For a company that has been asserting its supremacy in the mobile domain, Qunar has done exceedingly well considering that the team started monetizing qualified clicks garnered from its mobile platform exactly three years ago.

And this performance brought a change in the tie-up with Baidu. In fact, going forward Qunar projects that warrants issued to Baidu will go down from here on. This is owing to the fact that Qunar has laid aggressive marketing plans for its mobile platform and chosen to curb the same for the website platform.

Zhuang mentioned that the partnership is “actually moving from the PC age to the mobile age”.

“With all the user data pointing towards strong returns, we will continue to invest aggressively to further drive expansion of our mobile user base,” said Zhuang. Qunar’s active mobile users have risen from 25.2m in 2013 to 42.2m last year.

According to iResearch, there were around 750m installations of Qunar Travel till last year.

The contribution of mobile as a channel is growing. Mobile accounted for close to 40% of total revenue, approximately 41% of flights tickets sold and 56% of hotel room nights stayed, last year. Moving on this year, mobile contributed 59.4% of total revenues in the first three months. Mobile revenues for the January-March 2015 period were RMB398.5 million (US$64.3 million), an increase of 275.7% year-on-year. Overall, this is the fourth successive quarter that Qunar’s y-o-y revenue grew 100% or above.

A couple of other key figures:

Average number of flight ticket transactions per mobile user increased from 0.17 in 2013 to 0.34 in 2014.

Average number of hotel room night transactions per mobile user increased from 0.08 in 2013 to 0.18 in 2014.

With such figures, it becomes clear that Qunar isn’t going to slow down on this count. As shared by the company, its operating expenses can only go up from here on, “due to stepped up discretionary expenditures to acquire new mobile users through offline channels”.